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Comment by dagw | Hacker News Reader

Criminal gangs make good money selling tobacco and alcohol, which are legal basically everywhere. Sure not as much as illegal drugs, but still good money. Claiming legalization will destroy the illegal drug trade is just as naive as believing legalization will have no effect.

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... well yes because of the market distortion that the taxes on them produce. The only reason people smuggle them are to evade taxes. If you're going to legalize and then tax it so high that it will still cost the same as before the legalization, of course the negative side effects will continue to exist.

Do you honestly believe that the government would legalize drugs and then not use the opportunity to increase their budget by heavily taxing them? In fact one of the main argument I keep hearing for legalization is that it will bring in all kinds of tax revenue.

Of course it will be taxed, and probably at a higher rate than other products. The trick is to tax it at such a level that fraud (smuggling) is contained within acceptable bounds. For example, normal VAT here in the Netherlands (only country I know the rates of by heart, I have no reason to believe that it's significantly different in the rest of Western Europe) is 19% ; cigarettes are taxed at close to 300 % (VAT + excise). Yet still smuggling cigarettes is a relatively small problem, which indicates that this level can be borne by the market.

Note that I support nor advocate 'sin' or 'health' taxes, be it for moral or utilitarian reasons, I'm simply saying that even at 300% the amount of people that turn to the black market is fairly small. But even when taxing them at normal rates (VAT only) they would already bring in money - everything is better than the 0 they bring in now, or negative if you take into account the costs that arise from situations that exist only because drugs are illegal.

(edit: added missing half sentence)

Seeing the sales of cigarettes on reservation that do not honor state taxes and the number of customers buying, I would say paragraph one is not completely true. Smuggling is happening, it is just from a legal source.

I don't understand - yes there is smuggling, but on a small as I indicated. In Western Europe (the area I restricted myself to in my post) most of the fraudulent import comes from Eastern Europe and Russia, so yes they are bought legally there and then imported. Likewise, a fair number of people drive to Luxembourg where the tax rates are lower.

I take it that you mean that (Native American or Aboriginal?) reservations have autonomy when it comes to taxation and that they leverage that to attract tobacco customers from outside the reservation. Which makes sense, but I'm hard pressed to believe that it's a significant amount of total consumption. My back-of-the-envelope calculations (based on estimates of the World Bank and 40% of the EU population smoking 10 cigarettes a day) say that in the EU on less than 10% of all cigarettes smoked, no taxes have been paid. Which is not that much.

Of course if you have numbers that show that in the case you indicate the percentages are different I'd be interested to learn.

Surely you aren't claiming alcohol smugglers create a level of violence even close to the "drug trade"?

Additionally, if laws for illegal production and distribution were kept as serious as they are now, the risk/benefit ratio would be way off.

By "not as much" do you mean way way less?

http://www.npr.org/templates/story/story.php?storyId=1268064...

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